ENERGY

Rooms on the rig

Dallas firm's offshore hotels let drillers live close to their work

Abriny sea and a broiling sun lick the ganglia of metal pipes holding up a rig in the Persian Gulf. A typhoon threatens a rig in the South Pacific. Far from both, Mike Mullen keeps track from his Preston Road office, tending a fleet of offshore hotels servicing oil rigs around the world.

Mullen, 63, is a former NFL linebacker who courted thousands of women as a bachelor oilman on the Oprah Winfrey show in the late 1990s. Those escapades still get headlines when writers in Oslo or Singapore discover him. These days, however, his dramas involve the frontiers of offshore oil and finance.

With his team of four working in Dallas, Mullen has done well buying oil rigs when the market is weak and selling them when the market booms. He went from onshore drilling rigs stacked by Texas bankruptcies in the 1980s to offshore drill ships docked by the recession.

Now he’s trying a new business model. Instead of buy low/sell high, Mullen and his partners are building spacious, well-appointed accommodation rigs that he plans to lease for long-term contracts in a boom market.

Analysts are divided about whether it will work. Dallas-based Jim Wicklund of Credit Suisse says the cost of offshore oil and natural gas work is beginning to peak, and he expects oil companies to start backing away.

“Mike’s biggest risk is he buys or refurbishes a rig and nobody wants it for two or three years,” he said.

Mullen is upbeat.

“Buy and sell has been very profitable, but it can also be very profitable to hold assets long term. Our units right now generate $95 million a year,” he said. “When I buy and sell, that’s over. By owning my own equipment and operating it, I get the upside from the earning capability. It’s a cash machine vs. a golden asset.”

Mullen had a drilling rig rebuilt as a housing unit that’s heading for the Timor Sea, off the coast of Darwin, Australia. He has six others sitting in the Persian Gulf.

"Accommodation is now a very, very robust part of the business," says Mike Mullen. "It's not economical to transport workers back and forth." (David Woo/Staff Photographer)

Under construction

Four new offshore hotels worth $635 million are under construction at a shipyard in Dalian, China, on platforms with legs the height of a 58-story building.

“Accommodation is now a very, very robust part of the business,” Mullen said. “It’s not economical to transport workers back and forth by boat or helicopter from rigs 100 or 200 miles offshore. You need a nice living environment to appease the workers. And the majors [the big oil companies] are very, very worker-friendly.”

Mullen’s newest rigs, built with New York-based CBI Capital LLC, are designed to house 354 workers and can be expanded to take up to 450. Safety requirements call for double that capacity in lifeboats, so that each side of the platform has enough rescue equipment in case the rig tips over.

The rigs will have three cranes, with the biggest able to lift 200 tons. That’s so the accommodation platforms can also double as bases for reconditioning other rigs.

“These will be exceptional accommodations,” Mullen said. “TVs in every room. The latest Internet connections. A fitness center, a sauna, a theater.”

Mullen’s plan seems a good one, said Sean Shafer, a project director with the Houston-based analysis group Quest Offshore.

“The competitiveness for people in this industry is very high right now, especially with offshore experience,” he said.

Accommodation rigs are like hotels, with well-appointed meeting rooms and lounges. "You need a nice living environment to appease the workers," says Mike Mullen (CBI Capital)

“If you are an oil company looking for workers, you can offer a lot of money, but lots of people can do that,” Shafer said. “So offering a better quality of life, with enhanced safety, less helicopter trips — they do go down — that makes a lot of sense to me.”

Just as new technologies have led to another oil boom in the shale basins of Texas, North Dakota and elsewhere, offshore technologies have opened vast resources in the Gulf of Mexico and off the coasts of Australia, Brazil and East and West Africa.

Drilling rigs built on semi-submersible, double-hulled vessels and on ships with thrusters guided by satellites are sending steel pipes and drill bits through 2 miles of seawater and an additional 5 miles of the Earth’s crust.

Landlocked it may be, but Dallas has a place in the history of offshore oil and gas. The two firms with the largest offshore fleets in the world, Transocean and Ensco, are headquartered in Europe but got their start in Dallas.

Swiss-based Transocean, with 146 platforms and barges, holds the assets of Sedco, the company former Texas Gov. Bill Clements started as Southeastern Drilling Co. Transocean has a workforce of more than 18,000.

Transocean owned the Deepwater Horizon drill ship, which exploded and sank off the coast of Louisiana in 2010 while working for BP PLC. The disaster killed 11 workers and has cost the companies north of $42 billion.

Ensco, which has 75 drilling rigs, left Akard Street in Dallas for London in 2011.

Irving-based Exxon Mobil Corp. explores and produces in offshore frontiers across the world. Hunt Oil and Kosmos Energy, both in Dallas, have the capital and work some of these nautical prospects.

Tiny in comparison

By comparison, Mike Mullen Energy Equipment Resource Inc., a private company, is tiny. Mullen has two drill ships and seven accommodation rigs known as “jackups” that stand on girded steel legs. He has worked with U.S. partners such as CBI and GE Capital and with international investors from Brazil, Japan and Malaysia.

If his plans work out, Mullen expects the new accommodation rigs under construction in China to pay for themselves in less than four years. The offshore hotels have a life expectancy of 30 years.

The deepwater frontier explorers may be reaching the limits of how much money oil companies are willing to spend. But Mullen expects many established, shallower offshore properties will need his rigs.

“Offshore accommodations are a very, very important facet of the industry,” Mullen said. “The drilling part of the market is still controlling and predominant. But old facilities need to be reconfigured and still have a lot of oil beneath them.” ■